Abstract
This article examines the birth and development of the OMT programme and its implications for the EU integration process. It then analyses the OMT case from two perspectives. First, as an example of “Institution building” in the European Union: developments that lasted 2 years (2010–2012) and allowed the EU to establish a “permanent” programme which was capable of ensuring the effective exercise of ECB monetary policy. The legality of the OMT was recently confirmed by the Court of Justice in the Gauweiler judgment. Second, the OMT case reveals evident Member State dissatisfaction with the working of the European Union. This is highlighted in the sui generis 2014 preliminary reference of the German Constitutional Court, regarding the methods and the conclusion reached, on the legality of the OMT. The BVerfG reference led to the 2015 Gauweiler judgment. This position (as well as, before it, the position of the Bundesbank on the same issue) shows, ultimately, a distrust in the ability of the Union to enact, in the general interest of the Member States, measures in areas where the legislative power is now transferred to the European level. This situation resembles mutatis mutandis the 1832 “nullification crisis” between the State of South Carolina and the Federal Government of the United States of America. By analysing this phase of American legal history, the article tries to identify a common pattern of behaviour in “two tier legal systems”—such as the US and the EU—in their respective integration processes. This historical comparison sheds light on the peculiarity of the European integration process vis-à-vis the US experience and highlights the risks that lie ahead in EU integration.
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Notes
- 1.
This is the reconstruction presented by the Economist in The future of the European Union: The choice, in The Economist, 26 May 2012.
- 2.
For sake of space this article will not take into consideration the complex stages leading to the creation of the OMT programme and the related legal issues to be addressed. For a discussion of both, see Pace (2014b), p. 2162.
- 3.
ECJ 16 June 2015, Case C-62/14, Peter Gauweiler v. Deutscher Bundestag.
- 4.
- 5.
On the reconstruction of the cause of the economic and political crisis, see Tremonti (2014), p. 36. For a view of the future of the Union after the crisis, see Fabbrini (2015c). For a comprehensive reconstruction of the crisis and the role of the ECB, see Micossi (2015). For an overview of the regulatory changes after the crisis, Tosato (2014), p. 5.
- 6.
See Schmidt (2013).
- 7.
The ECB issued on 14 May 2010 the Decision ECB/2010/5 on the Security Market Programme (SMP). The programme’s goal was to protect the orderly transfer of monetary policy in the context of the single monetary policy—a goal already identified and pursued in previous programmes of the ECB before 2010 (see former President Trichet (2010), p. 11). The SMP, in particular, was qualified as a “temporary” programme. It consisted in buying on the secondary market public and private debt bonds of Eurozone States, interest rates of which showed an excessive spread compared to those of other States. Its aim was to reduce such a spread through the principle of supply and demand. The intervention was necessary on the assumption that spreads would “segment” the European market into different Countries and prevent a proper transfer of ECB monetary policy impulses in the context of a single monetary policy. Although the ECB had already issued before 2010 measures to combat the crisis in order to safeguard the proper transfer of monetary policy, such an innovative programme—and potentially divisive, as we will see later—had never been adopted by the Central Bank. The programme was “informally decided” by the Governing Council on Thursday 6 May 2010 and formally announced as the SMP programme on 10 May (Walker et al. 2010). The fact that date of the announcement did not coincide with that of the “informal decision” was because the ECB wanted to wait and evaluate what the Member States would decide on 9 May. The programme was an open market operation. Its legal basis was Article 12, para. 1, Article 13, para. 1, and, in particular, Article 18, para. 1, ESCB Statute, as set out in chapter IV (entitled Monetary Functions and Operation of the ESCB). Notably, the ESCB Statute is a Protocol (No. 4) to the Treaties and as such is EU primary law (Article 51 TEU). This is an important aspect that will be discussed later. The SMP programme was then executed—during the development and the extension of the financial crisis in its four temporal phases (see Pace (2014b), p. 2152)—for the purchase of Greek, Irish, Portuguese, Italian and Spanish bonds, although in different ways.
- 8.
- 9.
- 10.
On the lack of a EU crisis management system, see Editorial (2015), p. 231.
- 11.
Zhong (2012).
- 12.
- 13.
Sauer (2015), p. 973.
- 14.
ECJ 27 November 2012, Case C-370/12, Thomas Pringle v. Ireland.
- 15.
On this case law, see Munari (2015), p. 723.
- 16.
On the relationship between the violation of the Stability and Growth Pact and the 2003 structural reforms in Germany, see the article by the SPD President and Vice-Chancellor Sigmar Gabriel (2014), p. 1.
- 17.
The 2003 breach of the Stability and Growth Pact by France and Germany, with the help of Italy, is now widely seen as the trigger for the 2009 financial crisis; influential personalities on this position include: Helmut Kohl (2014), p. 45; Juergen Stark (in Zhong (2012)); Mario Monti (24 November 2011 during the joint press conference with Chancellor German Merkel and French President Sarkozy); Romano Prodi (Dernbach, Meier (2015)). See also Zingales (2016).
- 18.
Weidmann (2016), para. 3.2. The de facto suspension of the Stability and Growth Pact, along with the severe limitations of the European statistical system for the correctness of the budgetary data provided by the Member States—already denounced by the ECA in 2001—created the situation which then led to the start of the financial crisis in 2009. It was well known that Greece had always had, except in 2006, a deficit/GDP ratio higher than the binding 3% (just as it was known that France, Portugal and Spain entered the Eurozone with a ratio in 1998 higher than 3%). The de facto suspension of the Stability Pact in 2003 by France and Germany made it concretely inapplicable to Greece what France and Germany had willfully violated. The mismanagement of the Greek crisis with the Franco-German Deauville Pact of October 2010 created a contagion effect to Ireland. The crisis then evolved to Portugal, Spain and Italy. On this point see Pace (2014b), p. 2162. See also ECJ 13 July 2004, Case C-27/04, Commission v. Council.
- 19.
Introductory statement to the press conference (with Q&A) Mario Draghi – President of the ECB, Frankfurt am Main, 22 January 2015.
- 20.
The question concerns the legality of a measure of secondary law—as the Governing Council’s, decision although not published in the Official Journal—that defines the principle of partial risk sharing thus derogating from the principle of full risk sharing governed by a rule of primary law, i.e. Article 33 ESCB Statute relating to the division of any loss incurred in a ECB programme. It is said that this feature was a condicio sine qua non requested my some Member States’ Central Banks in order to approve the programme. See Introductory statement to the press conference (with Q&A) Mario Draghi – President of the ECB, Frankfurt am Main, 22 January 2015.
- 21.
BVerfG, para. 11.
- 22.
Blackstone and Boston (2015).
- 23.
Tropeano (2015), p. 296.
- 24.
See the presentation by Viral Acharya (2016).
- 25.
See Editorial (2015). On closer inspection the authors in the last page of the text claim that the WTO would only have an “indirect lender of last resort effect”, p. 238.
- 26.
This is because the Eurozone—unlike the US—has one monetary policy but 19 different economic policies. Therefore the Eurozone presents 19 different issuers of public debt bonds. This peculiarity creates the possibility of excessive spreads between bonds of different Eurozone States.
- 27.
See De Grauwe (2013), p. 520.
- 28.
See De Grauwe (2013), p. 527.
- 29.
See Pace (2014b), p. 2170.
- 30.
Ibid.
- 31.
Similarly, see Wendel (2014), p. 265.
- 32.
Wendel (2014), p. 277.
- 33.
See above, Sect. 3.
- 34.
See Sauer (2015), p. 993, who critically argues that “the assumption that the ECB’s OMT announcement affects or infringes the petitioners’ rights under Article 38, paragraph 1 (1) of the Basic Law is refuted even on the basis of the FCC’s substantive understanding of this right”.
- 35.
See Sect. 6.a.
- 36.
Tridimas (2015), p. 412.
- 37.
It has been argued that the case law of other constitutional courts invoked by the BVerfG is inconsistent with what the Court claims. See Claes and Reestman (2015), p. 970.
- 38.
- 39.
See, e.g., ECJ 5 February 1963, Case 26/62 NV Algemene Transport- en Expeditie Onderneming van Gend en Loos v. Netherlands Inland Revenue Administration; 15 July 1964, Case 6/64 Flaminio Costa v. ENEL; 9 March 1978, Case 106/77 Amministrazione delle finanze dello Stato v. SpA Simmenthal; 3 April 1968, Case 28/67 Molkerei-Zentrale Westfalen/Lippe GmbH v. Hauptzollamt Paderborn; 19 November 1991, Joined Cases C-6/90 and C-9/90 Andrea Francovich and Danila Bonifaci v. Italy. On the key importance of the principle of independence also in different branches of EU law see Pace (2014a), p. 141.
- 40.
ECJ 18 December 2014, opinion 2/13, Accession of the European Union to the European Convention for the Protection of Human Rights and Fundamental Freedoms, para. 176. In this sense, Sauer (2015), p. 1001.
- 41.
Para. 27.
- 42.
ECJ 18 December 2014, opinion 2/13, para. 176.
- 43.
Para. 16 of the judgment reads: “It must also be borne in mind that it is settled case-law of the Court that a judgment in which the latter gives a preliminary ruling is binding on the national court, as regards the interpretation or the validity of the acts of the EU institutions in question, for the purposes of the decision to be given in the main proceedings”. As noted also by the Editorial (2015), p. 227, and also by Claes and Reestman (2015), p. 969.
- 44.
Court judgment, para. 123.
- 45.
Walker et al. (2010).
- 46.
Allen (2016).
- 47.
See Sect. 3.
- 48.
In particular, the ECB has argued that “there is no liability risk for the national budgets because the European System of Central Banks has ensured sufficient risk prevention, mostly through provisions and reserves. If losses occur nevertheless, they can be carried forward and balanced with revenues in the Following Years” (para. 12).
- 49.
In this sense, see also Sauer (2015), p. 992.
- 50.
See Steen (2013).
- 51.
BVerfG judgment, para. 24.
- 52.
Goldmann (2015), p. 9, points out that in the reference the two elements of the BVerfG in its ultra vires review, that is the actual breach of EU law and the manifest breach of EU law, coincide in this way ultimately forcing the Court of Justice to either reach the BVerfG conclusion or to create a conflict with the position of the German Court. Equally critical, Claes and Reestman (2015), p. 969; Sauer (2015), p. 998.
- 53.
Para. 21.
- 54.
Sauer (2015), p. 997, argues that: “The FCC has deliberately confounded the doctrines of ultra vires review and of constitutional identity review, the review of EU measures and of domestic actions, the review of positive actions and of omissions, as well as of repressive and of preventive legal protection in order to disguise that it primarily addresses constitutional policy concerns”.
- 55.
Para. 69.
- 56.
Paras. 70–71.
- 57.
See Pace (2014b), p. 2172.
- 58.
With particular reference to the legal nature of the OMT programme, as recalled, the BVerfG considered the OMT not as “an act of monetary policy, but mainly an act of economic policy” (para. 69).
- 59.
Similarly, see Wendel (2014), p. 294.
- 60.
On this point, see Zaring (2015).
- 61.
The BVerfG argues that, since the OMT is set up as an operation similar to those governed by Articles 12, para. 1, and 18 of the ESM Treaty for the Eurozone financial stability—i.e. buying bonds on the secondary market—, this is an instrument of ECB economic policy.
- 62.
The BVerfG comes to an unresolvable contradiction when, on the one hand, it claims the danger exists that the ECB—in the absence of any legal constraint—can act “every time the monetary policy transmission mechanism is disrupted” (para. 97). On the other hand, the BVerfG does not consider that the legal constraint of the ECB for the implementation of OMT—OMT operation subject to the authorisation by the ESM of a financial programme—has precisely the function of creating the “constraint” that the BVerfG requires in the action of the Central Bank. The BVerfG then maintains that this constraint violates the autonomy of the ECB. This was later denied by the Court of Justice because, as expressed in the characteristics of OMT, there is no automaticity between approval of a measure by the ESM and the execution of OMT.
- 63.
Wendel (2014), p. 298, writes: “Again it is astonishing to see how the Second Senate’s majority tries to back up its argument with references to external sources which do not at all underpin its argument”.
- 64.
The BVerfG goes so far as to identify evidence of breach of Article 123 TFEU in the fact that the ECB retains bonds until maturity (para. 90). However, this behaviour is not only not expressly prohibited by EU primary law (i.e. Article 18 ESCB Statute), but is part of the natural discretion of Central banks in this context. See, on the US experience Zaring (2015).
- 65.
- 66.
For an interpretation in law and economics of the OMT case, see Lombardo (2015), p. 195.
- 67.
This should not be a surprise. The fact that the ECB has issued a measure that can be ex post considered unlawful—i.e. the SMP decision and not just individual purchases of specific Eurozone States Bond—is the consequence of the lack of a crisis management system at the time of the creation of EMU. Hence the need for the ECB to develop such a SMP programme during the crisis—in a “learning by doing” way—in order to protect its monetary policy. This is the result of the urgency with which the EU institutions have had to respond to the European financial crisis. Even in 2010 one of the bailout funds was issued on the basis of a deliberately erroneous legal basis. In fact the first rescue fund had been established with the Regulation (EU) No. 407/2010 having as legal basis Article 122, para. 2, TFEU. This was the only reference in the Treaty that would justify the creation of a solidarity fund. The funds established under this legal basis, however, are designed to help a Member State when it “is in difficulties or is seriously threatened with severe difficulties caused by natural disasters or exceptional occurrences beyond its control”. This was clearly not the situation facing Greece in 2010. In spite of this, the Eurozone established such a fund, though making it clear in the conclusions of the 2012 European Council that this was to be the last time such a legal basis would be used for such purposes.
- 68.
- 69.
- 70.
- 71.
In this sense, see Sauer (2015), p. 971.
- 72.
ECJ 27 November 2012, Case C-370/12, Pringle, para. 56.
- 73.
- 74.
Paras. 58–65.
- 75.
Paras. 59–62 and 64.
- 76.
Para. 65.
- 77.
This assessment of proportionality is required, according to the Court, pursuant to Articles 119, para. 2, TFEU, 127 TFEU, 5, paras. 1 and 4, TEU (paras. 66 and 67). On this, see Harbo (2015), p. 23.
- 78.
Paras. 73–75.
- 79.
Paras. 76–78.
- 80.
Paras. 88–89.
- 81.
- 82.
Para. 95.
- 83.
Paras. 100, 104 and 106–108.
- 84.
Paras. 109, 111–112, 114, 118–120 and 127.
- 85.
- 86.
Woods Jr. (2010), p. 110.
- 87.
As well as the basic theory of nullification, the text was written by John C. Calhoun, then Vice President under John Quincy Adams, and then, in 1830, Vice President under Andrew Jackson. He resigned from that post in 1832 because of disagreements with Jackson himself. He then entered, during the so-called Nullification crisis, in the Federal Senate representing the State of South Carolina.
- 88.
1930 South Carolina Exposition and Protest.
- 89.
Woods Jr. (2010), p. 112.
- 90.
Mason (1964), p. 108.
- 91.
See Jackson’s Proclamation to the People of South Carolina, 10 December 1832, in Richardson (1911), p. 640 et seqq.
- 92.
Mason (1964), p. 56.
- 93.
ECJ 5 February 1963, Case 26/62, Van Gend & Loos.
- 94.
This list of positions covered by German nationals as indicated by Fubini (2015): President of the European Parliament (Martin Schulz); the Chairman of ESM (Klaus Regling); President of the European Investment Bank (Werner Hoyer); Governor of the Development Bank of the Council of Europe (Rolf Welzel); President of the Bank for International Settlements (Jens Weidmann); the EIB Secretary-General (Klaus Troemmel). Germany in the person of the Minister of Finance would have endorsed the appointment of the Austrian Wilhelm Molterer as Managing Director of the European Fund for Strategic Investments (Juncker Fund), who was subsequently appointed to that position.
- 95.
Fairless and Blackstone (2012).
- 96.
See Calhoun (1851).
- 97.
See Walker and Galloni (2011).
- 98.
See The Wall Street Journal Europe, 28 June 2012.
- 99.
Fairless (2012).
- 100.
Sauer (2015), p. 988.
- 101.
Ultimately, the process of European integration, as started in the twentieth century, can be seen as a solution to the crisis of the European area after the tragic attempt of Nazi Germany to dominate Europe. This was in turn a consequence, from a legal-economic point of view, of the contradiction between the size reached at that time by the scope of the activities of firms and markets—a supranational dimension—and the purely national scope of European States power to regulate the economy. The solution of this “contradiction” in the European area was the creation of a common market among European States; an integrated market not too dissimilar from that of the United States of America. On this, see Pace (2007), p. 5.
- 102.
See above, Sect. 2.
- 103.
See above, Sect. 2.
- 104.
Schmidt (2015).
- 105.
See above, Sect. 3.
- 106.
See Pace (2014b), p. 2175.
- 107.
So seems to claim M. Ruffert in this volume, The EMU in the ECJ – A New Dimension of Dispute Resolution in the Process of European Integration.
- 108.
See above, Sect. 3.
- 109.
See above, Sect. 3.
- 110.
See above, Sect. 3.
- 111.
- 112.
See above, Sect. 6.a.
- 113.
Jackson’s Proclamation to the People of South Carolina, 10 December 1832, cited above. Similarly, Wendel (2014), p. 286, notes that the interests linked to national identity must not necessarily prevail, “otherwise EU law would be subject to 28 potential identity caveats”.
- 114.
In addition to the already quoted articles, see among others Denninger (2016); Wendel (2014), p. 273: “The Federal Court is adjudicating in an area for which it is not competent neither in a legal nor in a technical sense”; Sauer (2015), pp. 990 and 999: “Whatever solution the FCC is going to prefer, it should keep an eye on its mandate under the Basic Law”.
- 115.
See the comment to the BVerfG Lissabon Urteil by Mestmäcker (2010), p. 35.
- 116.
Isensee (2013), p. 10.
- 117.
However, see the positive attitude vis-à-vis the BVerfG reference by the Kronberger Kreis (Feld et al. 2016).
- 118.
- 119.
- 120.
Schmidt, ibid.
- 121.
Interview with Romano Prodi, “Berlino ha sbagliato e ha aggravato la situazione”, Il Sole 24 Ore, 14 January 2016, p. 1.
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I am indebted to Professor Massimo Luciani (University of Rome “La Sapienza”) and Dean William Treanor (Georgetown Law Center) for insights into the US Nullification Crisis. This article was written during a Fulbright Schuman research period in Washington D.C. The present article is dedicated to Professor Ugo Villani on his 70th birthday. This article represents the literature and case-law as of January 2016.
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Pace, L.F. (2017). The OMT Case: Institution Building in the Union and a (Failed) Nullification Crisis in the Process of European Integration. In: Daniele, L., Simone, P., Cisotta, R. (eds) Democracy in the EMU in the Aftermath of the Crisis. Springer, Cham. https://doi.org/10.1007/978-3-319-53895-2_20
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